NCLAT Denies Interest on Performance Bank Guarantee in Maan Sarovar Insolvency Case

Kences Constructions' appeal for interest on PBG refund dismissed; contractual terms upheld by the tribunal.

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) in Chennai dismissed the appeal by Kences Constructions Private Limited seeking interest on the refund of a Performance Bank Guarantee (PBG) related to the insolvency proceedings of Maan Sarovar Properties Development Pvt. Ltd. The tribunal upheld the sanctity of contractual terms, emphasizing that claims beyond the agreed contract cannot be entertained.

The appeal arose after a decision in the 30th Committee of Creditors (CoC) meeting led to the liquidation of Maan Sarovar Properties Development Pvt. Ltd., contrary to the approved resolution plan. Kences Constructions, the successful resolution applicant, had deposited a PBG amounting to 15% of the proposed plan, which was later sought to be refunded with interest after the CoC opted for liquidation.

The NCLAT, presided over by Justice Sharad Kumar Sharma and Indevar Pandey, held that the terms of the contract, specifically the Request for Resolution Plan (RFRP), clearly stipulated that the PBG would be refundable without any interest. The tribunal rejected Kences Constructions' claim for interest, stating that the contractual obligations are binding and cannot be waived or altered unilaterally.

The tribunal emphasized that the rights and liabilities of the contracting parties are strictly governed by the terms and conditions agreed upon. The ruling underscores the principle that contractual terms, once set, cannot be unilaterally amended or contested unless explicitly provided for under the contract.

In their judgment, the tribunal noted that the RFRP document and the Letter of Intent did not provide for the accrual of interest on the PBG. The tribunal further observed that the performance guarantee was a mechanism to assure the performance of obligations under the contract, not an investment for interest accrual.

The NCLAT decision reinforces the principle that in contractual relationships, parties are bound by the agreed terms, and claims for additional benefits such as interest must be explicitly provided for in the contract. The dismissal of Kences Constructions' appeal affirms the importance of adhering to contractual terms in corporate insolvency resolutions.

Bottom Line:

Performance Bank Guarantee (PBG) - Refund of PBG along with interest - Claim for interest on PBG cannot be granted if not explicitly provided under the terms and conditions of the contract.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016

Kences Constructions Private Limited v. Mr. Ashish Vyas, (NCLAT)(Chennai) : Law Finder Doc Id # 2821485